British American Tobacco has angered its big investors by proposing
performance-related share awards for chief executive Nicandro Durante

The FTSE 100 giant behind Benson & Hedges and Lucky Strike cigarettes has been rocked by a shareholder revolt over a controversial new pay plan that could see its boss take home about £10m, the Telegraph has learnt.

British American Tobacco has angered its big investors by proposing performance-related share awards for chief executive Nicandro Durante that would be worth at maximum up to five times his salary and a bonus valued at as much as two-and-a-half times his base pay if certain targets are met. His salary approached £1.2m in 2014.

At present, the BAT boss’s long-term incentive plan (LTIP) is limited to a maximum of four times his salary and his annual bonus capped at two times.

The British American Tobacco offices Photo: NEWSCAST

“I don’t think it’s necessary to keep pushing these levels, frankly,” said one top 10 investor, adding they planned to “push back” against the tobacco giant, which is also seeking approval to boost the package of its finance director, Ben Stevens. “They’re just not underpaid and this is a relatively simple business to run.”

The new pay policy comes as the current one expires after 10 years. It will be voted on at its AGM in April.

The latest dispute comes as shareholders revealed they rejected an even bigger package for Mr Durante last year, when BAT’s remuneration committee tried to secure an LTIP six times his salary, a level that one investor described as “ludicrous”. There was also anger over his bonus in 2012, a year after he was appointed chief executive.

BAT’s remuneration committee is led by non-executive Kieran Poynter, who has been chairman since last May.

The company’s results have been hurt by sharp falls in emerging market currencies, with revenues falling 8.4pc to £13.97bn in 2014 and pre-tax profits down 16.4pc to £4.8bn. The awards that BAT executives have netted from their earnings-linked LTIPs have fallen because of the foreign exchange hit. Mr Durante received £3.6m in total in 2014, including a salary, pension, bonus, and other benefits, down from £6.7m in 2013.

The company now wants to alter the terms of the new awards so that they are based on BAT’s performance on a constant currency basis – to remove the effects of foreign exchange – in a move that has met with resistance from investors. “You can’t just change it to suit how currencies are working for you at that time,” said another BAT shareholder.

In a further blow to BAT, investors are questioning the way it draws up its remuneration proposals. The company looks at pay at a wide range of firms, including advertising giant WPP and oil company Shell, to gauge what its management should receive. Investors believe it is “debatable” the right comparisons are being drawn.

A BAT spokesman said: “The reason we are talking to our shareholders is because our Long-Term Incentive Plan (LTIP) is due for replacement next year after ten years.

“So like many other companies, in line with best practice, we’re talking to our shareholders about a number of aspects of our remuneration policy. This includes the compensation for our Executive Directors, ensuring that it remains fair and competitive.

“Our proposals have not been finalised yet, so it would be inappropriate for us to comment on the detail of these discussions at the current time.

“However, the feedback we have had so far has been very constructive.”